A short sale is when a home is sold for market value in an attempt to recoup money lost on a mortgage. This usually happens when a seller is in default for 90 days. This can be a great way to get a deal, but it is a long process for some. On average, short sales take around 116 days from start to finish. This is how a short sale works from the side of a buyer.
Finding a Short Sale
Buyers can use an online database or consult a real estate agent that has experience in short sale transactions. Online websites like Multiple Listing Service is a great place to search for listings. Look for properties using these key terms: short sale, subject bank approval, preforeclosure, third-party review required, and pre-approved by the bank. If the property you’re viewing includes one of these terms, it’s a short sale.
There is, however, a difference between a property that is “approved for sale” and one that needs a “third-party review required.” “Approved for sale” means the bank already determined that the property meets short sale requirements by the seller.
A “third party review required” sale means the homeowner lacks approval from their lender. This could also mean that the approval is pending the review of the owner’s application. In this stage, application may not qualify and it will need to be sold at a higher price.
Making the Right Offer
Once you find a short sale you wish to apply for, be careful of the price. If you lowball the price, your offer won’t be considered. The “right price” may be difficult to establish. This is where a real estate agent experienced in short sales should be consulted. Once you’ve determined the proper price, make an offer.
There are a few things that can make your offer more appealing. For one, an offer made in cash will be highly considered. If you show that you can pay the full price up front, a lender will be extremely likely to accept your offer. However, you should remember that these prices are listed low originally to be competitive. There will likely be several other offers on the short sale.
When you submit an offer, there are certain things that must be included. For one, the buyer and seller must both sign off on the offer. There must also be an earnest money deposit. The larger the deposit, the more likely the bank will be to accept the offer. A pre-approval letter must also be included as proof that the buyer has the financial ability to purchase the property at the proposed price. Finally, information about recent home sales for similar properties ought to be included. This gives the bank comparable ideas on local prices in relation to your offer.
At this point, your offer may be rejected for a number of reasons. The most common reason is that the price is too low. Lenders will choose a short sale offer only if they’re making a profit versus how much they’d make in a foreclosure. Other reasons your offer might be rejected could be an incomplete short sale package, the seller may not be eligible, the buyer is related to the seller, or a lienholder makes an unreasonable demand from the seller.
You can increase your chances of being approved by doing several things. We’ve already mentioned that offering a sizable deposit will increase the chances of your acceptance. You should also make sure all of the paperwork is properly filled out and submitted in a timely manner. Having a strong preapproval letter will also increase your chances. Finally, submitting an offer that is close to the original price gives you the best overall chance.
Beware of Complications
Unfortunately, there are things that can cause complications for you during a short sale. For one, you might have to pay any leftover fees like homeowner association fees, defaulted taxes, or unpaid utility bills. Before you get the keys to the short sale, you have to pay any fees related to the property.
The lender also may change the terms of a short sale at any moment during the process. Some reasons that the lender alters the terms are because the price of the property has increased or new information has come across their desk. Ultimately, these usually have to do with the price of the house to be increased.
Finally, remember that these homes may be in disrepair. If a homeowner has defaulted on their mortgage, it’s unlikely they were able to keep their home kept up. It isn’t unusual to find homes in extreme disrepair. Be aware of any issues with a home by requesting a walk through or an inspection before making an offer.
